Who can deduct interest on second home?

by G. Scott Haislet, CPA, Esq.

If I purchase a second home in my name and allow my daughter and her family to live there, can she make payments directly to the bank and deduct the interest from tax?

The words "second home" can mean different things in different situations. Let's presume "second home" is not a vacation home but means a home other than your principal residence, in fact a home intended specifically only for your daughter's use as her principal residence.

Under those facts, her payment of the monthly mortgage interest would not be a deduction for her income.

A taxpayer may claim a home mortgage interest deduction related to a principal residence if the mortgage debt is used to buy or improve the property (or a replacement debt of the original purchase-money loan). The loan must be secured by the property (this is typically reflected in the mortgage or deed of trust document recorded in the public property records). The person claiming the deduction must actually pay the obligation, must actually occupy the property as principal residence, and have an ownership interest in the property.

Your daughter appears to fail on the last condition: ownership.

That will be remedied if (1) you transfer the ownership on paper by a transfer deed to her (the loan may stay in your name; if she agrees to pay the loan payments by a simple written promise to you, then she qualifies to take the deduction); or (2) you and your daughter have a written agreement under which your daughter is declared owner of the property and your daughter agrees to pay the mortgage, taxes, insurance, etc. The agreement under (2) immediately above need not be recorded.

G. Scott Haislet, CPA, Esq., is a tax adviser, estate planner and real estate attorney. You can reach him at (925) 283-1031(925) 283-1031.

Have a question for a CPA? Ask it here.

In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.

G. Scott Haislet, CPA, Esq., is a tax adviser, estate planner and real estate attorney. You can reach him at (925) 283-1031(925) 283-1031.

Have a question for a CPA? Ask it here.

In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.